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GRI commentary on “risk and corporate culture” featured in Globe & Mail

GRI Contributor and professor at the Munk School of Global Public Affairs Mike Durland, and GRI President Mark Caplan offer business commentary on "Why risk management must include corporate culture" in Feb 18th, 2018 issue of Globe Mail. 

The piece explains how pockets of bad corporate culture with errant employee behaviour can go unnoticed, and how new tools are now becoming available to help organizations do a better job of managing people risk and their corporate reputations.  

Read piece below or  you can read the full article in the Globe & Mail 

Business Commentary

The secret life of culture

In large corporations, CEOs often say “Our most important assets go up and down the elevator every day”.  The same can be said for the most significant liabilities. People are our biggest assets, but also our biggest potential liabilities.

Yet in the wake of the global financial crisis, one area of risk management that has seemingly eluded control, but certainly not accountability, is corporate culture.

To many, Wells Fargo was top of the class for corporate culture. They survived the global financial crisis with very little financial or reputational damage.  Yet something went horribly wrong.

Wells Fargo’s relentless focus on cross-selling (measured by products per customer), and their intense application of metrics to drive results produced an “achieve your goal at any cost” culture.  This crossed-wiring of incentives and culture became a ticking time bomb that ultimately detonated when certain individuals began to fabricate accounts to achieve their sales targets.

The financial sector is by no means alone when it comes to managing people-related risk.  Since allegations of sexual harassment were made at Uber in February of 2017, a continuous stream of similar allegations have come to light against an ever-growing list of companies, including NBC, Nickelodeon, Amazon, and others.

A simple definition of culture is the social behavior, values and norms found within a group. This definition highlights that culture is rooted in the concept of behavior, and more specifically, in collective behavior.

Our most important assets go up and down the elevator every day

Most large enterprises organize their human resources in a hierarchy. Executives at the top establish goals for the organization then push those goals down through the hierarchy. To ensure control, organizations establish values and norms that are similarly pushed down the hierarchy.  These values and norms are designed to act as a governor.  The objective is to achieve goals without violating values. Culture acts as both as an enabler and a constraint.

In the world of the risk management of everything, the board of directors, the CEO, and the executive team are held accountable for culture risk. Yet a culture can often develop a secret life of its own, often because of a lack of effective tools for managing culture risk proactively and holistically.

But as a recently published paper from the Global Risk Institute illustrates, new tools are now becoming available that can help uncover secret sub-cultures and detect environments that aren’t as healthy as they could be. These techniques, such as the application of Language-Psychology Science, can enable organizations to diagnose problem areas by understanding their impact on employee psychology before they manifest into problematic behaviors. For example, by combining psychology and linguistics with data science and machine learning, organizations can develop the ability to predict behaviour based on changes in employees psychological state evidenced by altered use of language in their work.

Applying Language-Psychology Science to culture risk management potentially provides a holistic view of culture risk by looking at the psychological health at the aggregate level.  An aggregate view provides insights into the atmosphere, health, emotions, and cohesion of employees. Results can also be benchmarked against other institutions to provide a relative measure.

By highlighting places where the psychology differs from organizational or industry norms, or where significant changes to psychology occur over time, areas of concern can be flagged for investigation. These areas of concern may show psychological differences from the organization as a whole, or differences from established norms based on departments, roles, geographies, or any other structural groupings.

When a team shows significant negative variance from established norms with respect to stress, for example, the whole organization may suffer. On the more sinister side, specific changes to other psychological attributes such risk-taking tendencies within a team, can be indicative of an environment which may be fertile for insider threat-type behavior. Identifying these psychological changes can provide an organization with an early warning system to prevent culture risks from taking root.

Recent sexual harassment issues at numerous organizations and other examples of errant behaviours are a wake-up call for virtually every large corporation to recognize their exposure. Stakeholders will no longer tolerate attributing internal people issues to “bad luck.”  

The world of the risk management of everything is a world of accountability. Fortunately, powerful tools are emerging that enable large institutions to maximize the value of their human assets while proactively minimizing the risk of their human liabilities.

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